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Bill Cara: Watch the top line, not the bottom line

Bill Cara’s Blog for July 20, 2010
July 20, 2010 by Bill Cara

Morning Call [8:12am ET] Prior to earnings season, I recommended that traders switch their focus onto the top line versus the bottom line as the latter can be manufactured with the aid of all kinds of tricks. Besides, since the overriding concern today is employment and personal income, it would be hard for a corporation to be expansive with employees if the business itself isn’t growing. Since the US economy is consumer driven, traders need to see revenue growth and enough to meet or exceed expectations.

Yesterday that did not happen with IBM or Texas Instruments and their stocks sold off in after market trading. A few days ago a couple key banks ran into the same problem. This morning all eyes are on Goldman Sachs. The present market environment is so fragile, it seems, that if Goldman Sachs reports a strong quarter, then stocks will rise, defying the Bear pressure that’s been evident since mid-April, and if not, then the broad market will likely tumble.

You’d like to think that a $14.7 trillion US economy would not be so influenced by a company that has annual revenue of about $55 billion and earnings of about $14 billion, but it is, at least at this point.

So, Goldman Sachs just reported. The current quarter revenue is $8.84 billion and earnings were $613 million ($0.78 vs $4.93). The stock is down -2.5% in pre-market trades.

Have a great day.
http://caracommunity.com/content/bill-cara%E2%80%99s-blog-july-20-2010